Snap (SNAP  ) shares dropped nearly 40% following the company's Q2 earnings report which showed it missing analysts' expectations on the top and bottom line. It also announced that it was going to sharply curtail its hiring plans and also prioritize reducing operating expenses.

The bigger picture is that Snap and Pinterest's (PINS  ) entire business model may not be viable following Apple's (AAPL  ) changes in ad targeting. Companies are reducing their spending on these platforms as the ads have become less effective. Overall, Snap's shares are down 80% in 2022 and 88% from their peak in 2021.

Inside the Earnings

In Q2, Snap reported a loss of $0.02 per share which was steeper than an expected loss of $0.01 per share. Revenue grew 13% but also missed expectations at $1.11 billion vs expectations of $1.14 billion.

Global daily active users beat expectations at 347 million versus 344.2 million expected. Another factor in shares being down was Snap choosing not to provide guidance, and it noted that revenue was flat compared to last year, while analysts were projecting an 18% increase in Q3.

It also acknowledged not being satisfied with its current situation. Some of the challenges facing the company beyond Apple's advertising changes are younger users increasingly flocking to TikTok, the Russia-Ukraine war, inflation impacting consumer spending, and a slowing economy that impacts ad spending.

This is the crux of the problem for Snapchat. The company appealed to investors over the previous bull market due to its combination of user growth and revenue per user. Now, both are in question, and this is in an environment where investors care less about growth and more about profitability. Even with its nearly 90% decline, Snap remains a $26 billion company.

It did make some efforts to please investors by announcing a $500 million repurchase program. It also announced that key executives like CEO Evan Spiegel had signed contracts to stay with the company until 2027 with an annual $1 salary and no additional equity compensation.